“The question would be, do they have anyone else who can come in and step in?” asks T.J. Sullivan, owner of Huggins Insurance in Salem, Oregon. “If they got cancer, and they couldn’t farm, what would that do to their family?”

That’s where disability policies come in.

“The ability to preserve that income while you get healthy is huge,” says Matthew Woodbridge, a producer at Valley Insurance Professionals in Salem. “All the operating costs that happen day-to-day, you either have to take care of it from home or pay someone else to do it. Disability funds can help maintain that income and keep the business going.”

Health insurance presents its own challenges — both choosing an individual policy and figuring out what benefits are required for employees.

Woodbridge helps his clients assess the options based on several questions, including how often they visit the doctor, what they tend to see them about, whether they have any chronic conditions and what clinic access is like in their area.

“Each insurance company has a network of providers,” he said. “In more rural communities, you don’t want someone to have to drive an hour just to see the doctor.”

“If someone is diabetic, that can affect their ability to work at their business,” he said, so getting them signed up for one of these programs can be beneficial to them and their farm.

For larger businesses, there is the issue of providing health coverage to employees.

“The Affordable Care Act sets the standard that if a business has the equivalent of 50 full-time employees, then you need to offer them health insurance,” Woodbridge said.

There is also a 100 full-time employee threshold — penalties for not offering insurance go into effect in 2015 for the 100 FTE level and in 2016 for the 50 FTE level.

Woodbridge suggests business owners work with an agent to help navigate through the marketplace and negotiate with carriers.

“Working with an agent also lets business owners look at all the carriers without having to research each one individually,” he said. “The agents essentially do all the legwork.”

Sullivan pointed out that business owners need to keep an eye on the status of any tax credits they might have in play with the ACA.

“Some farmers have applied for tax credits to afford the price of insurance,” he said. “But then they might end up having a bumper crop and making more than anticipated and seeing their income go way up.”

In this case, they would end up having to pay back the tax credit, so he recommended setting some funds aside.

Woodbridge added that one thing business owners and employees should keep in mind is their rights in regards to insurance.

“In the state of Oregon, you have the right to buy health insurance regardless of legal status,” he said.

In July 2014, the state approved a permanent administrative rule explicitly stating this.

“Undocumented access and the right to purchase insurance is a critical piece of the puzzle,” he said.

“The sentiment now is that the Federal Reserve will keep short-term rates where they are for most of 2014,” said Nakano, the executive vice president, chief administration officer and chief financial officer for Northwest Farm Credit Services. “What we are seeing is probably late 2015 or early 2016 before they start to raise interest rates.”

There are a couple of dynamics, he said. The domestic U.S. economy is looking better, unemployment rate is down, there’s a strong payroll number, so confidence is building here.

“The driving negative statement on rates is geopolitical,” he said. “The Federal Reserve is saying that even though the United States is doing OK, we have enough concerns about the international world that we want to wait before raising rates.”

What does all this mean for agricultural loans, such as operating loans?

“Agricultural producers typically don’t base decisions about borrowing for short-term needs based on the interest rate environment,” said Curt Hudnutt, chief risk officer for Rabo AgriFinance. “Since most producers have on-going short-term financing needs, they always carry operating debt. In addition, interest rates on operating loans are generally variable in nature and thus will increase as the short-term rate environment begins to strengthen.”

Nakano added that with the interest rate looking stable for the next couple of quarters, his company has been working with its customers to address some of their variable-rate debt.

“On our operating loans, unless it’s a new customer, they’ve been with us for a while, and we’ve told them that if they are on a variable rate, we can fix that rate,” Nakano said. “If they have a variable rate on their farm mortgage, we can tell them it looks like rates are (eventually) going to go up, so you ought to start looking at fixing those variable rates.”

Overall, Nakano said, short- and long-term rates are looking relatively stable for the next 12 months or so.

“Longer-term rates, like those tied to mortgage loans, those will stay where they are at for now, they might go down a little,” he said. “Now is a pretty good time for an expansion, or buying the neighbor’s place, if it’s an option.”

]]>Good financial plans put your money to workhttp://www.capitalpress.com/SpecialSections/AgFinance/20141212/good-financial-plans-put-your-money-to-work
http://www.capitalpress.com/SpecialSections/AgFinance/20141212/good-financial-plans-put-your-money-to-work#CommentsFri, 12 Dec 2014 10:17:39 -0500 Sarah Kickler Kelber http://www.capitalpress.com/apps/pbcs.dll/article?AID=2014141219947After an unexpectedly good season, a farmer might be faced with a conundrum: Where to put those profits — back into the farm or into some other investment?

It’s a good problem to have, to be sure, but it’s not without its challenges.

“Farmers are really good about putting their funds into the farm side, not as much into retirement and non-retirement issues,” said Paul Neiffer, a principal certified public accountant in agribusiness at CliftonLarsonAllen LLP in Yakima, Washington.

He compares the three investment options to the three legs of a stool that must be kept in balance.

“I definitely think having some additional assets outside of the farm makes sense because our farm clients often have all their net worth tied up in the farm,” Neiffer said. “If you siphon some of that off (to other investments), it can help smooth things out when the cycle turns if farming goes down, giving them the liquidity they might need for the farm.”

It starts with looking at a farm’s balance sheet and making sure there is enough on the “current assets” side.

“For a farmer who has bought a lot of equipment with cash and land with cash, that liquidity might not be where it should,” he added. “It might make sense to refinance some equipment and land with lower interest rates.”

He stressed the importance of having a strategic plan covering the next three to five years so you know what your goals are and how to adapt to changes in the industry.

David Buck, the partner in charge of agribusiness services at AKT in Salem, agrees.

“(Making decisions) is best done in the context of a plan and goals that a farmer sits down and thinks about,” he said. “It’s a lot easier if it’s in the context of these goals.”

He recommends a farmer with some unexpected profits first look at debt structures and to pay some of that down if it’s an issue.

“When retirement is looming you want to have the debt under control,” he said. “If debt is under control, a lot of farmers see land as their primary source of retirement since land has always been a great long-term investment and an inflation hedge.”

Then, for farmers with excess cash flow who don’t have land they want to purchase, he suggests some sort of a qualified retirement fund such as an IRA.

The land issue changes if a farmer is planning to pass the farm along to the next generation.

“If you aren’t planning on selling your land or if you are leasing, you have to look at a long-term plan to set money aside,” Buck said. “There are some good tax-favored vehicles for this purpose.

“The tax law encourages individual retirement savings, and farmers can tap into that just like any business entity.”

Neiffer agreed, pointing out that “with retirement, the younger you start, the power of compounding becomes very powerful.”

Buck reiterated that it all goes back to a plan that should be created long before retirement is looming.

“It’s not that difficult to sit down with someone who is more of a numbers person who can look at a 10-, 15-, 20-year approach,” Buck said. “A good planner is going to be able to factor in things like health needs, Social Security components, and so on.”

Neiffer added that investment diversification is not the only thing to keep in mind, that risk diversification and making sure a farm’s structure is properly set up are also key.

Beyond that, he said, farmers can be pretty conservative on the investment side, with, say, a mix of bonds or fixed income equities.

“I’m fine with farmers being fairly conservative with non-farm investments and fairly aggressive on the farm side because being a little more aggressive over a 10-, 20-, 30-, 40-year period, it always pays off,” Neiffer said. “Equities have always outperformed bonds in that time period, and a farm operation is already an equity component.”

If a farmer is faced with excess cash flow, Buck said, “the main thing is to do something productive with that influx. If you have an influx of funds, take them off the table and put them to work for you.”

Wind, hail, fire, too much or too little moisture, pests, disease. Any one of these factors can impact the quantity and quality of a crop.

That’s where crop insurance comes in.

“Crop insurance allows a producer to insure a crop based on his own history,” said George Harris, a senior insurance agent with Northwest Farm Credit Services. “The program is subsidized by the federal government, which makes it cost-effective for the producers and allows a guarantee for the farmer to protect his crops against natural-related causes of loss.”

As an example, Harris mentions a case in which rain at harvest time caused cherries to split.

“The grower would be paid indemnity for the loss on the cherries,” he said. “If a producer did not have crop insurance there is nothing there for him. The farm has to absorb the loss.”

Crop insurance is typically not mandatory — growers have to decide what level of risk they’re willing to take on. It can be cyclical, though.

“A lot of times, you’ll see a participation rate go up when a new policy is introduced because of the publicity,” Harris said. “But if they go a few years without claims, that drops off. Then we have a catastrophic event and some growers are paid out, you’ll see the participation rate go back up.”

Crop insurance for wheat is its own special case due to market protection.

“When wheat is up high, you’ll see the participation rate go up because what goes up must come down,” Harris said.

This year has seen some changes for crop insurance options. The 2014 Farm Bill introduced a new program called Whole Farm Revenue Protection, which will replace adjusted gross revenue coverage.

This type of insurance covers all the crops that a grower is producing and looks at the total gross revenue of that producer using a historical average based on five years of tax history.

“This allows producers to insure an anticipated income,” Harris said. “They can insure as much as 85 percent of that revenue. As a person goes through a harvest, if their crops fall below the guarantee, then they’re paid a loss.

“This gives them not only a market protection but also protection against market fluctuation and yield loss.”

“In the Willamette Valley with all of its specialty crops, that will be a very popular policy,” Harris said. “Many of them don’t have a federally subsidized crop insurance plan.”

These plans, which are available in all counties in Oregon, Washington and Idaho, can insure a farm for up to an $8.5 million liability.

Some other crop insurance changes in the Farm Bill include a supplemental coverage option available for wheat, an increase in coverage level by practice and an expansion in the organic options for many crops.

“Now, irrigated and non-irrigated crops can have separate coverage levels, which is very powerful,” Harris said.